Bridge your home loan gap with the right top up!

By | March 26, 2011

How to finance your purchase of a dream home, has always been a question to many. In these times of increasing realty prices and rising interest rates, the thought just seems to be in gray, whether or not you can take a step ahead in deciding your dream home or not. Most people face the dilemma of shortage of funds. After taking a home loan they still find a gap of a few lakh rupees from acquiring their property. If you have internal sources, like family and friends who can lend you some soft finance, then well and good. But if not, did you think about any alternatives that can help you?

Well here are some options that are made available to you :

Loan against LIC policy :

If your LIC policy has acquired a surrender value, then you can directly approach LIC and ask for a loan against that surrender value. You will be entitled to avail 90% of the surrender value as loan and 85% in case of paid up policies . The borrower can repay this amount by adjusting the loan value with the interest to the policy’s amount at maturity. The interest, thus charged, is paid at the rate 9% which is to be paid half yearly. The loan is granted from 6 months from the date of payment and in case the policy becomes a claim either by maturity or death within six months from the date of loan, interest will be charged only up to the date of maturity/death.

Loan against PPFs, ELSS etc :

Loan against Personal Provident Fund is granted when it has crossed 2 years of its lock in period. You also have an option of borrowing against your mutual fund investments and ELSS only after their lock in period of 3 years or as stipulated by your policy, is completed. It carries an interest rate ranging from 11-13%. Loan against securities give you about 50% of the value of the shares or equity mutual funds.

Loan against Gold :

This has become an increasingly used option for raising top up loans. Availing loans against gold has a very simple paper work, does not include many hassles and moreover carries lesser rate of interest. “Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loans come at a lower cost than other forms of personal loans. Moreover, you get higher loans against your gold compared to loans against securities,” says Pankaj Mathpal, certified financial planner, managing director, Optima Money Managers. NBFCs can offer you about 70-95% of your gold value pledged as loan. The loan tenure is upto 3 years and the interest falls within 11-20%

Loan against Property :

Loan against property should be considered only if in case you want to raise large funds since it is not show prudence in pledging a property to raise small amount of loan. The interest varies form 12-15% and the borrower is entitled to only 50% of the property value as a loan.

If incase, you want to sell your property, but do not have a potential buyer and want to direct the income received from such a sale towards paying the down payments of your new home, then you can opt for a bridge loan. This will provide you with the finance to pay for your down payment of your new home and be able to purchase it. However, if you are unable to find a buyer within , usually, 6-12 months time frame then the bridge loan will be converted into a mortgage loan. So you will, at the end, be paying two EMIs at high interest rates.

So, if you do not want to end up in such slippery situations, think wisely before deciding how you want to fill the gap of your home loan.

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